Profit Sharing may Stabilize Wages
1992 (English)Report (Other academic)
We consider a contract between a risk neutral firm and its risk averse workers, which is signed before product demand is known. Unemployment insurance is imperfect. A fixed wage contract that allows the firm to choose the level of employment leads to too many layoffs in bad states. We show that a profit-sharing contract can be used to attain the efficient level of employment, while at the same time preserving optimal risk sharing between the parties. Under this contract wages are stabilised across states. Thus, a profit sharing contract may be useful when workers are risk averse and concerned about layoffs.
Place, publisher, year, edition, pages
Stockholm: IIES , 1992. , 30 p.
Seminar Paper / Institute for International Economic Studies, Stockholm University, ISSN 0347-8769 ; 526
IdentifiersURN: urn:nbn:se:su:diva-41844OAI: oai:DiVA.org:su-41844DiVA: diva2:337946